Picking the right market weight can add Revenue

At any given time, there are about a million pigs placed in grow-finish barns within a 50-mile radius of Worthington, MN. Many of those pigs are overseen by the production management team at ProPig based in that southwestern Minnesota town

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At any given time, there are about a million pigs placed in grow-finish barns within a 50-mile radius of Worthington, MN. Many of those pigs are overseen by the production management team at ProPig based in that southwestern Minnesota town.

At the helm of the production management division is Keith Wilson, DVM, who coordinates a staff of skilled specialists focused on managing pigs from placement to analyzing packer reports on each truckload. Reed Leiting, DVM, director of nutrition, is responsible for formulating best-cost rations to optimize pig performance.

Wilson says there are few management principles in grow-finish barns that suffer from as much neglect as the effort placed on screening and selecting pigs for market. Clearly, grow-finish managers place a good deal of emphasis on getting pigs started right, and keeping them healthy, well-fed and comfortable (warm, dry, draft-free). Those managers generally have no control over the genetics of the pigs, so their growth, feed conversion and carcass value are virtually locked in.

These are the “givens” in grow-finish, which Wilson refers to as Finishing 101, the basic principles that must be mastered to send quality pigs to the packer.

“The one thing that we can really control on a day-to-day basis is market weight,” Wilson says. But it is this area that not only suffers from neglect, but also a good deal of misunderstanding.

Selection of market-ready pigs is often a haphazard affair with an ill-advised preoccupation with the average weight of the pigs in the load. The pig picker’s target is often the packer’s so-called “sweet spot” in a carcass weight-driven pricing grid and a disproportionate emphasis on eliminating sort loss.

Although it seems counter-intuitive, Wilson says to maximize return, some sort loss is not only inevitable, it is desirable. “We call it precision marketing. It’s about picking the right weight and, more importantly, getting the weight spread — the standard deviation — narrowed to 10-15 lb. vs. the 20-30 lb. range common in a load. Basically, it’s margin maximization — more pounds sold at a higher overall value per pound. If pigs are more precisely marketed, the average weight sold can be increased,” he says.

Early lessons for this weight-watcher concept came from Canada over 10 years ago, where producers weighed their pigs to help ensure they hit the more stringent market windows of their packers.

“That drove us to put scales in some barns and to design barns to accommodate weighing without giving up performance. That led to a greater focus on market weights,” Wilson recalls. “The scales allowed us to do a better job of picking the right weight and getting (weight) distribution as narrow as possible. That can mean an additional $3-5/pig.

“I’ve become very passionate about this,” he declares. “But it is frustrating because it is a difficult concept to get across to people. We’re not just talking about average weight, because it’s also about how tight the weight distribution is. The goal is not to eliminate sort loss completely, because some sort loss is necessary to maximize revenue per pig.”

Precision Marketing

The more current vernacular to describe this initiative is to arrive at the “full-value pig,” a concept that arose from a modeling program developed by Dennis DiPietre and adapted by Elanco Animal Health.

“We connected with them because we have been doing this for six years and understand what they are saying,” Wilson explains. “We like to call it ‘precision marketing’ because market weights change with market price, commodity prices, and what is the best market weight from a profitability standpoint. It’s more than just hitting the right weight, it depends on the input costs and how much the carcass is bringing. It’s getting a narrower weight spread — standard deviation — for a load. Basically, its more pounds sold at a higher overall value per pound.”

Wilson uses an Elanco real case scenario to illustrate the concept. A 5,000-head finishing unit has a targeted market weight of 278 lb. Following closeout of the site’s barns, packer reports showed a standard deviation of 23.5 lb., live weight, so the average sort is distributed widely around the targeted average, which breaks down as follows: With 5,000 head marketed and a standard deviation of 23.5 lb., there are 600 pigs weig hing 270-280 lb. (the sweet spot); 1,950 pigs land between 265-290 lb.; 3,550 pigs fall within the 250-290 lb. range; and 1,450 pigs fell outside of the 250-290-lb. range — heavier or lighter.

If the price/cwt. is $50, the 1,450 pigs marketed outside of the packer’s preferred window (250-290-lb.) will be penalized $5.95/head, which translates to $29,746 lost revenue for that turn of the finishing barns.

“This is a high standard deviation — perhaps a little on the extreme side — but it is not unusual,” Wilson explains. “When we’re outside of the bull’s-eye that the packer is really willing to pay for, there is a loss to that.”

Carrying the marketing scenario further, if the standard deviation can be narrowed to 18 lb., the lost revenue is reduced to $21,406 — an $8,070 savings. “Even that little (5.5-lb.) move is worth $1.67/pig,” he notes.

“We generally target a 10-15 lb. standard deviation; very seldom do we get less than 10 lb.,” he admits. Usually, the first “pull” from a finishing barn will have a bit wider standard deviation, as will the “clean-out” load.

“We are talking dollars here — not pennies. That’s why ProPig picks all of the market pigs for our clients. We don’t allow the grower to pick pigs for sale. It adds cost to our system because we have people dedicated to doing that, but it is that important,” he stresses.

Variation is Natural

ProPig managers work primarily with two packers whose carcass weight reports are used to calculate live weight. “The load has a standard yield, and we figure that back to live weight,” Wilson says. “All decisions are made from carcass weights. It’s not perfectly accurate, but it’s pretty close.”

All carcass data is entered into the MetaFarms i-Production recordkeeping and benchmarking program, which in turn can be downloaded into DiPietre’s model. This helps show producers what they are losing and the importance of doing a better job of sorting market hogs, narrowing standard deviation.

“The reason our approach is difficult for some people to understand is we gain more revenue per pig; we don’t lower costs,” he adds.

Load Market Summary

The concept is best explained using a packer’s Load Market Summary worksheet (Figure 1), including the weight distribution for one load of 182 market hogs. The orange in the columns reflects the packer’s preferred carcass weight grids. The bar graph in the lower right is a graphic display of the weight distribution of the load. Again, narrower distribution is better. The “carcass yield” is used to calculate “actual live weight” of the 182 hogs.

“The number to look at is the standard deviation — 20.2 lb. — a little bit wide of our targeted 10-15-lb.,” Wilson explains.

The next value to look at is “carcass value less sort (loss),” which reflects the packer’s preferred column, where sort loss is deducted.

In the next column, “carcass less sort, plus lean” adds in the packer’s lean premium.

The final column (far right) provides a carcass value after sort loss is taken out, the lean premium is added back in, and the feed costs to attain the next weight category have been subtracted.

“The paradigm that is difficult for people to get over is that in order to get the best value per pig, you will probably have to increase sort loss. You need to pay sort loss to get the best return. If you target zero sort loss — there is missed opportunity,” he emphasizes.

To clarify, he points again to the orange shaded area in Figure 1 and explains the pigs that fall outside of this area represent the sort loss — and it’s okay to have those outliers.

Focusing on the two columns on the far right, there is significant sort loss with this load. However, when you look at return per pig after sort loss is taken out, the lean premiums are paid, and the feed cost is subtracted — the two carcass yield categories — 216 to 222 lb. and 223 to 229 lb. — have the highest value: $146.63 and $146.51/pig, respectively.

To reinforce the wisdom of taking some sort loss, he points to the 39 head in the 208-to-215 lb. carcass weight range, the heaviest in this packer’s grid. After removing the sort loss and adding in the lean premium, those pigs were worth $170.56/pig. But, when the additional feed cost/pig is subtracted, the value is $145.73/pig, less than the next two weight categories and outside of the packer’s preferred grid.

“Every weight category up (heavier) will take a certain amount of feed, so that is built into the table. The 32 pigs (15 in the 216-to-222-lb. category and 17 in the 223-to-229-lb. category) that fell out of the packer’s preferred matrix have the highest return after feed costs are taken out.

“Again, there will be sort loss. We don’t ignore it completely. In this load the sort loss was $5.19/pig, which is too high. Getting a tighter sort will reduce sort loss — but it will not eliminate it. You have to get your head around the fact that even though they are going to deduct some sort loss, because you have a lean pig and more (carcass) weight, you can afford to take some sort loss. At the end of the day, you will take home more dollars,” he reinforces.

“It’s true, if we narrow the standard deviation (20.2 on this load), the sort loss will go down. But, our goal is to minimize sort loss, not to eliminate it. We need to look beyond striving for zero. If you get a zero dollar sort loss, you’ve lost revenue because you did not market those pigs at the best weight for that group,” he says.

“The worksheet serves as kind of a report card for the guy picking the pigs. The average live weight was OK, but the range (standard deviation) was wider than we’d like. So, we look at it and ask: ‘What would have happened if we had marketed these pigs 10 lb. heavier or 10 lb. lighter?’ (lower left on worksheet). The “feed cost” calculation factors in a feed efficiency (FE) estimate and the cost of the diet. If the pigs had been marketed 10 lb. lighter or 10 lb. heavier, the feed savings or expense would have been $573, respectively.

“We can see the net loss would have been $215 (10 lb. lighter) or $164 (10 lb. heavier),” he explains. “It addresses the question: ‘Should we have gone heavier with this load of pigs?’ Technically, we are at the right weight — but with too much weight distribution.”

Barn Closeout Report

To reinforce the importance of doing a good job of picking pigs in a tight distribution, Wilson uses the “Full Lot Market Summary (Adjusted)” worksheet (Figure 2, page 16), which includes all pigs from one finishing barn.

The white and orange boxes display information on the “actual” marketing of the group (the distribution is also shown in blue in the bar graph).

“We know what’s possible when a guy does the very best job in a barn with (auto-sort) scales. If we take the number of pigs actually sold and artificially move them to the best possible distribution (the green boxes in the table and burgundy bars in the graph marked ‘adjusted’) and just slide them into the categories where they should have gone for the best possible return — sliding the heart of the group down a little bit to slightly heavier weights and tighter distribution — the value is $4.62/pig.

“Everything else is the same — same pigs, same market. The difference between the ‘actual’ and the ‘adjusted’ isn’t so much the extra weight, but rather a tighter distribution. Getting more pigs into the sweet spot,” Wilson explains.

“In this case, the biggest dollar savings available is probably on the heavy pigs. He is really getting nailed; they cost him a lot of feed, and the pigs are being discounted hard by the packer,” he points out. “Look how many pigs are marketed 323 lb. and heavier (129 pigs). He missed them. He had the opportunity to get these marketed sooner. He just didn’t get it done.”

Pig Care, Marketing Services

ProPig staff screens pigs as they come off the truck for placement in grow-finish barns, watching for lame and unthrifty pigs. “When there’s not an ownership change, it’s not a problem,” Wilson explains. But if a sow farm is placing the pigs, they send as many pigs as they can, realizing that they may not get paid full value for those “off” pigs.

Their current fee is about $3.05 per pig, which includes risk management and marketing assistance on commodity inputs and carcass price, production oversight and recordkeeping. Additional information on the finishing management services at ProPig can be found at: http://www.propig.com/ProductionMgmt/About/tabid/363/Default.aspx.